ID Bar Business Associations 1 — Questions and Answers
Question 1: Under Idaho's Uniform Limited Liability Company Act, which of the following is the default rule for management of an LLC?
- Manager-managed by a board of directors
- Member-managed, with each member having equal rights in management (Correct answer)
- Manager-managed by a single appointed CEO
- Court-appointed management
Correct answer: Member-managed, with each member having equal rights in management
Idaho Code § 30-25-407 provides that an LLC is member-managed by default — all members share equal management rights unless the operating agreement specifies manager management.
Question 2: Under agency law, which of the following best describes actual authority?
- Authority that a third party reasonably believes the agent has
- Authority that the principal has expressly granted or impliedly granted to the agent (Correct answer)
- Authority that arises from emergency circumstances
- Authority granted by statute
Correct answer: Authority that the principal has expressly granted or impliedly granted to the agent
Actual authority — both express and implied — arises from the principal's manifestation to the agent, either explicitly or by reasonable implication from the circumstances.
Question 3: In a general partnership under Idaho's Uniform Partnership Act, partners are personally liable for partnership debts:
- Only up to the amount of their capital contribution
- Jointly and severally for all partnership obligations (Correct answer)
- Only if the creditor proves the partner was negligent
- Only for their proportionate share of the debt
Correct answer: Jointly and severally for all partnership obligations
Idaho Code § 30-23-306 adopts the UPA (2013) rule that partners are personally liable for partnership obligations jointly and severally.
Question 4: Which of the following best describes 'piercing the corporate veil' in Idaho?
- A shareholder may sue the corporation for failing to pay dividends
- A court disregards the corporate entity to hold shareholders personally liable when corporate form is abused (Correct answer)
- A court merges two corporations for regulatory purposes
- A creditor forfeits its security interest in corporate assets
Correct answer: A court disregards the corporate entity to hold shareholders personally liable when corporate form is abused
Piercing the corporate veil is an equitable doctrine allowing courts to hold shareholders personally liable when the corporate form is used to commit fraud or when the corporation is the alter ego of its shareholders.
Question 5: Under Idaho corporate law, directors owe which of the following duties to the corporation?
- A duty of care and a duty of loyalty only
- A duty of care, a duty of loyalty, and a duty of good faith
- A duty of profitability and a duty to maximize shareholder value (Correct answer)
- No fiduciary duties under Idaho law
Correct answer: A duty of profitability and a duty to maximize shareholder value
Idaho corporate directors owe a duty of care (act as a reasonably prudent person would), a duty of loyalty (no self-dealing), and a duty of good faith in all corporate decision-making.
Question 6: Under the business judgment rule, a court will generally defer to a board's business decision unless:
- The decision was not profitable for the corporation
- Shareholders voted against the decision
- The directors were not informed, acted in bad faith, or had a conflict of interest (Correct answer)
- The decision resulted in a lawsuit
Correct answer: The directors were not informed, acted in bad faith, or had a conflict of interest
The business judgment rule presumes directors acted on an informed basis, in good faith, and in the honest belief the action was in the corporation's best interests — the presumption falls when directors were uninformed, acted in bad faith, or had a conflict.
ID Bar Business Associations 1
Under Idaho's Uniform Limited Liability Company Act, which of the following is the default rule for management of an LLC?